Eucalyptus in Brazil: Wooing Investors, Ignoring Science

800px-eucalyptus_tereticornis_flowers_capsules_buds_and_foliage"Eucalyptus plantations are destructive." -- Anne Petermann, executive director, Global Justice Ecology Project

Most of the 700 species of eucalyptus are native to Australia. First introduced in Brazil in the early 1900s as an alternative wood source, it become a prime non-native crop there, with plantations taking up 4.7 million hectares, giving the nation the biggest share of world’s total of 19.6 million hectares. India comes in second with 4.3 ha, followed by China with 2.6 ha.

PRODUCTIVE INVESTMENT OPPORTUNITY

"Eucalyptus plantations in Brazil are among the most productive ecosystems in the world...typically producing more than 40 m3/ha/yr of wood," according to Brazil Eucalyptus Potential Productivity (BEPP), a cooperative research project of the University of Sao Paulo ESALQ, Colorado State University, the Rocky Mountain Research Station of the USDA Forest Service and six forest companies: VCP, International Paper, Veracel, Bahia Sul Cellulose, Copener Florestal and Aracruz. "The world-record rates of production are sustained by intensive silviculture, including genetic selection of superior trees, clonal propagation, intensive site preparation, and fertilization."

And now, institutional investors have a new opportunity to invest in Brazilian eucalyptus with the recently launched VBI Timberland fund, a 15-year closed-end fund looking to raise $350 million with an expected closing in December and an annual internal rate of return target of 14 percent. The Sao Paolo-based alternative asset management firm Vision Brazil Investments (VBI) is the investment manager for the fund, which will be managed by Brazil Timber. According to the Bainbridge Island, Washington-based advisory consultancy Forest Research Associates, the fund will invest in sustainable forestry projects in Brazil, "aiming to put most of the money towards plantations of eucalyptus, a timber that is popular in the manufacture of furniture and can also be used in the steel industry once turned into charcoal."

CAVEAT EMPTOR: MONOCULTURE PLANTATIONS ARE BAD

But are Brazil's eucalyptus plantations truly sustainable? Anne Petermann, the executive director of the non-profit environmental group Global Justice Ecology Project, based in Hinesburg, Vermont, says no. "Eucalyptus plantations are destructive," writes Petermann in a blog post on Climate-connections.org. "Rapidly increasing their productivity (and hence their need for fertilizers, ground water, herbicides, etc) will cause even more severe impacts. And engineering them to be cold tolerant (such as they are attempting in the US) will enable their production in new regions meaning the loss of even more forests at exactly the time when we need our forests more than ever."

The World Rainforest Movement, a non-profit environmental advocacy organization based in Montevideo, Uruguay, notes a study by Carlos Cespedes of the Uruguayan Faculty of Science that "verified that monoculture eucalyptus plantations cause a considerable loss of organic matter and increased acidity, associated to the alteration of the normal values," which leads to the spread of fungi that prevents water from penetrating the soil, causing surface runoff and soil erosion.

WRM also notes that the argument that large-scale monoculture tree plantations are effective carbon sinks that help mitigate the effects of climate change is misguided. Carbon storage by plantations is short-term because the trees will be cut down, and the transformation of South America's grasslands into monoculture tree plantations destroys the carbon sinks that already existed in those ecosystems, releasing tons of carbon into the atmosphere. "In spite of all the scientific evidence existing on the negative impacts of large scale monoculture tree plantations, the Climate Change Convention insists on promoting them under the false argument that plantations can alleviate the effects of climate change," asserts WRM.

INFLUENCING INDUSTRY: CONSUMERS AND INVESTORS HOLD THE POWER

"Corporations have today replaced small-scale farmers as the prime drivers of deforestation, a shift that has critical implications for conservation," writes forest expert Rhett Butler on the Yale Environment 360 website. "Yet while industrial actors exploit resources more efficiently and cause widespread environmental damage, they also are more sensitive to pressure from consumers and green groups. As a result, activists have more power today than ever to affect corporate behavior and slow the dizzying pace of tropical deforestation worldwide."

But there's another actor who exerts quite a bit of influence as well -- the socially responsible investor. As President Obama noted in a speech in Rio de Janeiro in March, "The United States was the first nation to recognize Brazil’s independence." Likewise, socially responsible investors should recognize the importance of maintaining Brazil's unique and globally important environment.

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NOTES

http://climate-connections.org/2011/07/01/blog-post-for-friday-eucalyptus-time/
Ibid.
http://lamar.colostate.edu/~binkley/Brazileucalyptus.htm
http://www.forestry-research.com/forestry-investment/344/fra-seeks-support-for-new-brazilian-forestry-fund
Ibid., 1.
http://www.wrm.org.uy/bulletin/136/Uruguay.html
 http://e360.yale.edu/content/feature.msp?id=2267
http://www.whitehouse.gov/the-press-office/2011/03/20/remarks-president-people-brazil-rio-de-janeiro-brazil

image: Eucalyptus tereticornis buds, capsules, flowers and foliage (credit: Ethel Aardvark, Wikimedia Commons)

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